Cash out Refi

[Raj Patel]

Hi everyone. 

So still planning my next move with the expectation that I start this process around May 2nd week. Currently tied up with other things. 

I currently own a retail building I purchased years ago. 3 years left on the loan with a sub 4% interest rate. God's grace have had no problems paying PITI so far. Cash flowing positive. I was hoping to cash out refinance and come out with around $800k cash on hand post principal repayment. I feel this target can be achieved given recent cap rates sold in the area, and hundreds of thousands of dollars worth of renovations combined done by me the landlord (1 unit+exterior), and my amazing tenants who did gut renovations of their units.

The general rule of thumb is to use 3 lenders for cash out refinance right? My current bank, and possibly 2 others.

The current bank I’m wary of because they used a 10% cap rate at time of purchase for the appraisal which is Trenton/Newark/Mott Haven level bad. They claimed the appraisal was independent but I have my doubts. I had to put 35% down, and make up the gap which still leaves a sour taste in my mouth. Their 10% cap rate valuation was even less than the town’s market appraisal to determine property taxes. That’s virtually impossible given that the town goes as low as possible. They also did not allow me to dispute, and the seller on the other side did not want to compromise so I was left stuck in the middle. I will look for 2 other lenders who are also going to be comparable national banks. But the hope is the $800k will happen. 

I have a few questions about the cash out refinance side of the transaction. Besides LTV what other factors are considered? My credit score is 800+. Will they look at DTI? I have a huge personal mortgage (P,I,T,I) that currently takes up around anywhere from 25%-38% DTI depending on how you calculate gross income. Just w2 would be around 38%. Would a cash out refinance to a LLC factor into my personal DTI? When I purchased the building I had no personal mortgage so my DTI from the personal side was non existent. Submitting bank statements/liquid assets won't be a problem.

Thanks 

[Mike Grudzien]

Raj,
You situation is both simple and complex at the same time.  Do your research and do diligence.  You have quite an opportunity if you play it right.
Mike

[Raj Patel]

Quote from @Mike Grudzien:

Raj,
You situation is both simple and complex at the same time.  Do your research and due diligence.  You have quite an opportunity if you play it right.
Mike

Yes it is both simple, and quite insanely complicated. Do you know what lenders look for? 

And are 30 year terms available? 

My goal is to purchase MF/MU in NYC with the $700k out of the $800 so at 40% down my budget would be $1.75M. 

[Ko Kashiwagi]

Hi Raj,

Depending on the program you qualify for, lenders may use your personal financial statement - and thus possibly take your liabilities into account. It may not be a simple DTI calculation but rather including your liquidity and assets into account - which may be a little complicated.

[Mike Grudzien]

Raj,
Ko makes a good point.  Work with seasoned professional and drill down on all your options.  If you're talking to a broker that only shows you one or two programs: find another.  Over the years I've worked with brokers that would figure out 6 different ways to do a deal and then we'd compare them all against what the specific goal for the deal is.
Mike

[Raj Patel]

Quote from @Ko Kashiwagi:

Hi Raj,

Depending on the program you qualify for, lenders may use your personal financial statement - and thus possibly take your liabilities into account. It may not be a simple DTI calculation but rather including your liquidity and assets into account - which may be a little complicated.

Hi Ko, 

 So banks have multiple programs? My lender is one the top 10 national banks by assets (can’t reveal who due to privacy concerns). I thought it was a one size fit all situation? 

As in you apply for cash out refinance and they have Fannie Mae requirements checklist. 

I’ll dig deeper but I hope to get a 30 year term.

When I applied for a personal mortgage in 2021 I don't remember the underwriter caring about the outstanding principal amount on the commercial loan since it is through an LLC. In fact he gave me credit for income derived through the LLC including all add backs in excess of my actual cash flow distribution. Why would a commercial lender care about personal mortgage DTI?

But another lender in 2021 was unable to analyze K1s/P&L/Bank statements and reduced by loan eligibility by 25%! This was another bank but regional unlike the Top 10 bank I used for personal & commercial.

My other top concern is this even worth it? If I’m unable to use the $700k (out of $800k) to purchase $1.75M (40% down) RE what’s the point of even cash out refinancing when I have just 3 years left. 

I feel the best strategy is to work backwards and start with the purchase to see if it’s even feasible.

When commercial loan P+I is added to personal expenses in the overall DTI ratio do they give you credit for cash flow or the entire NOI in the income side of the hypothetical RE purchase?

Thank you. 

 

[Raj Patel]

Quote from @Mike Grudzien:

Raj,
Ko makes a good point.  Work with seasoned professional and drill down on all your options.  If you're talking to a broker that only shows you one or two programs: find another.  Over the years I've worked with brokers that would figure out 6 different ways to do a deal and then we'd compare them all against what the specific goal for the deal is.
Mike

 I felt I didn’t need a broker for a simple cash out refinance but when you look at the bigger picture of the eventual purchase and go backwards to the cash out refi maybe it’s wise to use one. 

[Brandon Croucier]

Hi Raj,

I can help you out with this, both the purchase and the refinance.

I have a numerous different programs on doing a cashout refinance for retail commercial. We can take a look and see which option best fits your needs. Depending on which program we look at, we may or may not need to take a look at your DTI , 30 year terms are available.

Let's connect!

[Alecia Loveless]

@Raj Patel If you feel you got taken advantage of by your current bank maybe just go to 3 other other lenders.

My bank just pulled a similar stunt on a refinance I was doing. They came in at $500,000 on a building I know is worth at least $800,000 on the market given its location, condition, and the improvements I have made since I bought it.

It seemed the appraiser knew EXACTLY how much I was looking to borrow and solely based the results of the appraisal on that.

For years I put in all my contracts that a specific appraisal company could not be used for the appraisal of any deal I was doing because their results were consistently so low it was laughable. Unfortunately my bank has a contract with this company now so any deal I do with them gets this company. The deals always come in right on the money with no variation so I know they’re not doing the job.

Appraisals are subjective and if I were you I wouldn’t use this bank again.

[Jacob Sherman]

Quote from @Raj Patel:

Hi everyone. 

So still planning my next move with the expectation that I start this process around May 2nd week. Currently tied up with other things. 

I currently own a retail building I purchased years ago. 3 years left on the loan with a sub 4% interest rate. God's grace have had no problems paying PITI so far. Cash flowing positive. I was hoping to cash out refinance and come out with around $800k cash on hand post principal repayment. I feel this target can be achieved given recent cap rates sold in the area, and hundreds of thousands of dollars worth of renovations combined done by me the landlord (1 unit+exterior), and my amazing tenants who did gut renovations of their units.

The general rule of thumb is to use 3 lenders for cash out refinance right? My current bank, and possibly 2 others.

The current bank I’m wary of because they used a 10% cap rate at time of purchase for the appraisal which is Trenton/Newark/Mott Haven level bad. They claimed the appraisal was independent but I have my doubts. I had to put 35% down, and make up the gap which still leaves a sour taste in my mouth. Their 10% cap rate valuation was even less than the town’s market appraisal to determine property taxes. That’s virtually impossible given that the town goes as low as possible. They also did not allow me to dispute, and the seller on the other side did not want to compromise so I was left stuck in the middle. I will look for 2 other lenders who are also going to be comparable national banks. But the hope is the $800k will happen. 

I have a few questions about the cash out refinance side of the transaction. Besides LTV what other factors are considered? My credit score is 800+. Will they look at DTI? I have a huge personal mortgage (P,I,T,I) that currently takes up around anywhere from 25%-38% DTI depending on how you calculate gross income. Just w2 would be around 38%. Would a cash out refinance to a LLC factor into my personal DTI? When I purchased the building I had no personal mortgage so my DTI from the personal side was non existent. Submitting bank statements/liquid assets won't be a problem.

Thanks 

What type of retail building is it ?